Accounting and Financial Statements 101

For everyone but bean counters (especially rogue startup badasses)

Peter Kos @peterkosjr

linkedin.com/in/peterkosjr !!

#DENStartupWeek

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Discussion• Financial Statements

• Forecasting, Business Planning & Cash Flow

• Capex and Depreciation

• Accounting Software and Charts of Accounts

• Other considerations

• Valuation and cost of capital4

Broad Arcs• You as the CEO are where Finance, Operations,

Planning/Forecasting, and Marketing converge

• All business plans are always wrong.

• Have some idea of your exit before hiring a CFO

• Be candid about your skills in these areas

• Plan top-down and bottom-up

• It’s about execution, not an idea - focus on the hard stuff

Period!

Financial Statements

• Income Statement

• Balance Sheet

• Statement of Cash Flows

• Statement of Shareholder’s Equity

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Balance Sheet September 30, 2014

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Balance Sheet September 30, 2014

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Chart of Accounts

• Income Statement Accounts

• Balance Sheet Accounts

• Trial Balance

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Working Capital

Current Assets - Current Liabilities

Current: within 12 months(Is this accessible money?)

Working Capital

Current Assets - Current Liabilities

Inventory Tax Payments Payable

Accounts Receivable Accounts Payable

Note Receivable Note Payable

Cash !

Cash Flow Statement

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Real Cash Flow Statement

Forecasting• All forecasts are always wrong

• Tests fundamental assumptions about the business model

• Consider your revenue model - if you are buying every customer, you’re dead

• Balance Sheet Forecasts essential, but painful

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Breakeven Analysis

• The break-even number is less important than the “minimum viable business”

• Manufacturing business often think in terms of “cost plus” and then attempt to minimize costs / improve margin

• Cost base (fixed costs) divided by gross margin = break-even sales

• Caution: this is not = cash flow positive

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CapexCapex = Capital Expenditure = Fixed Asset

Depreciation = Cost of fixed asset / life expectancy

Depreciation Expense = not a cash outlay

Makerbot Replicator Cost $2,950

Life Expectancy (Useful Life)

in Months36

Monthly Depreciation Expense 81.94

Capex Risk / ReturnCost: $10,000

Profit: 2,500 yearly

Cost: $5,000

Profit: $1,250 yearly

Cost: $5,000

Profit: $1,250 yearly

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Debt vs. EquityThe cost of capital

$ $$$$

Debt Equity

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Read this book before looking for equity money:

Venture Capital Private Equity

ESOPs

Valuation

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Pitfalls• Don’t plan “downhill, with a tailwind”

• Growth is rarely exponential or even linear after the “honeymoon”

• Beware step costs

• Manufacturing, service, software, and distribution businesses all have different growth drivers

• Selling more to your customers vs selling to more customers

• Plan for availability of capital before you need it

• Factoring = Bad

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CPM Churn

COA

ChannelKPIs

Competitive Moat

Conversion Rate

Sales Pipeline

Ratios

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A/B testing

• Xero

• Zoho Books

• Freshbooks.com

• Account Edge

Accounting Software

• Quickbooks

• Peachtree / Sage

• Less Accounting

• Intaact, NetSuite, etc.

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A Shameless Plug

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@peterkosjr

pkos@netpositiveco.org

Come spend the weekend with me

No, I didn’t mean it that way

Well, ok…if you really want to

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Thanks Swiftpage !slideshare.net/PeterKosJr/acct101denstartupweek2014

!!

@peterkosjr !

linkedin.com/in/peterkosjr !

peterkosjr@gmail.com !!

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